Weatherford Drops $1 Billion Financing Plan After Stock Takes A Beating

After igniting a wave of investor angst, Weatherford International quickly backpedaled on a proposal to raise $1 billion, raising questions about whether the oil field services company remains in the running to buy up assets for sale as two of its competitors prepare to fuse together.

In an unusual about-face, the Switzerland-based company that operates out of Houston pulled the plug on plans to issue debt and stock offerings less than 24 hours after making a Monday announcement that triggered a massive sell-off in shares of Weatherford's stock.

The company initially said it intended to use the money raised to fund potential acquisitions and for general corporate purposes, spurring speculation that Weatherford was gearing up for a big buy as services giant Halliburton prepares to sell off assets to gain regulatory approval for its proposed $35 billion takeover of Baker Hughes.

In a statement released Monday night, Weatherford said that while investors expressed strong interest in the fund raising plan, the company decided against selling securities at such low prices that "do not reflect the value we have created."

"The company continues on its resolute course of focusing on its core business and the efficiency of its operations," Weatherford said in a statement.

A Weatherford spokeswoman could not be reached for comment.

The company did not say whether it would continue pursuing acquisitions through other means.

With Weatherford backing away from the financing plan and instead reaffirming its commitment to focus on its core businesses and making operations more efficient, it seems unlikely that the company will make a bid for big, expensive assets that require large amounts of capital such as those targeted for divestment by Halliburton, said Bill Herbert, an analyst at Simmons & Company International in Houston.

"Strategically, what they were trying to do made sense," he said. "But the market disagreed with them. The cost to capital was too high for a company such as Weatherford in the current environment."

Weatherford's dramatic reversal came late Monday after its stock took a beating, with shares tumbling $1.71, or 17 percent, to $8.41 on Monday on the New York Stock Exchange.

After dropping its plans, Weatherford's stock recovered some of its losses, with shares climbing 90 cents on Tuesday to close at $9.31. But the mixed messages from the company have further muddied the narrative about the company's strategy, analysts said.

"Frankly, it will take a lot longer for Weatherford's credibility to recover," analysts at Tudor, Pickering, Holt & Co. wrote in a note Tuesday.

That fresh round of uncertainty is problematic for a company that has struggled to chart a clear path forward, said Matthew Marietta, equity research analyst at Stephens.

Weatherford is one of the world's largest drilling contractors. The company has been hit hard by the global crude slump, forced to slash 11,000 jobs, or about 20 percent of its workforce, shutter 60 percent of its operating facilities in North America and announce plans to close 30 more facilities by year-end.

Investors likely balked at the plan because Weatherford appeared to be trying to raise money for an unspecified deal that hadn't been announced at a time when the company has been vocal about shedding non-core assets and focusing on cash flow, he said.

"It's been an ongoing and sustained problem with management to effectively communicate what their strategy really is, and this doesn't help," Marietta said. "It's more of the same, unfortunately."

By Rhiannon Meyers

Source: Houston Chronicle